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(Reuters) - Iranian President Mahmoud Ahmadinejad said on Saturday that the Islamic Republic, targeted by tougher Western sanctions, would soon announce advances in its nuclear programme.

He was speaking on the 33rd anniversary of the Islamic revolution that toppled the U.S.-backed Shah. Tens of thousands of Iranians joined state-organised rallies to mark the occasion.

"In the coming days the world will witness Iran's announcement of its very important and very major nuclear achievements," Ahmadinejad told a crowd at Tehran's Azadi (Freedom) Square in a speech relayed live on state television.

Demonstrators carrying Iranian flags and pictures of Supreme Leader Ayatollah Ali Khamenei chanted "Death to Israel" and "Death to America". Ismail Haniya, who heads the Islamist Hamas administration in the Gaza Strip, also attended the ceremony.

Ahmadinejad gave no details of how Iran's nuclear work, which Tehran says has only peaceful purposes, has progressed.

The United States and Israel, a country which Iran does not recognise, have not ruled out military action if sanctions fail.

Iran has warned of a "painful" answer, saying it would hit Israel and U.S. bases in the Gulf as well as block the vital Gulf oil shipping route through the Strait of Hormuz.

"If attacked by the Zionist regime (Israel), we will turn it to dust," said a Revolutionary Guards commander, Mohammad Shirdel, semi-official Fars news agency reported on Saturday.

"Thousands of our missiles will target Israel and the 40 bases of America in the region," he added.

The nuclear dispute has fuelled tension as the West tightens sanctions. The European Union has agreed to ban Iranian oil imports by July and to freeze the assets of Iran's central bank.

Its measures reinforce those imposed by the United States as the West tries to force Tehran to return to talks before it produces enough nuclear material for an atomic bomb.

Neither side has shown much appetite for compromise. Iran says it will fight EU sanctions with counter-measures and its parliament plans legislation to ban oil exports to the EU.

Iranian officials brush off the impact of sanctions, while also proclaiming that Iranians will endure any hardship in support of their country's right to nuclear technology.

"I am saying openly that if you (the West) continue to use the language of force and threat, our nation will never succumb to your pressure," Ahmadinejad said.

Global oil flows are realigning even though the EU ban on imports from Iran only takes effect in July, the International Energy Agency said in its monthly Oil Market Report on Friday.

Asia's two giants, China and India, want to head off new sanctions on Iran. China, Iran's biggest trade partner, is one of six major powers involved in nuclear talks with Tehran.

Ahmadinejad, echoing Iran's official stance, said fresh nuclear talks would be welcome. The last round collapsed a year ago over Iran's refusal to halt its uranium enrichment work.

"They say we want to negotiate. That is fine with us, we have been always ready to hold talks in the framework of justice and mutual respect," Ahmadinejad said. "The Iranian nation will not withdraw even one iota from its path."

Western nations say talking is pointless unless uranium enrichment is on the table, something Iran refuses to discuss.

Iran's economy is around 60 percent reliant on oil. The country is heavily dependent on food imports, buying 45 percent of its rice and most of its animal feed abroad.

But Ahmadinejad said the economy was "flourishing", reeling off figures to back his contention. Critics have in the past accused the government of falsifying economic statistics.

"We have saved over $30 billion for rainy days," he said. "Iran's non-oil exports will reach over $43 billion by March ... Iran's imports in the past 10 months dropped five percent."

Following reforms under which the government phased out hefty subsidies on staples like food and fuel since 2010, Ahmadinejad said billions were saved by not importing petrol.

"We were importers of fuel but ... now we are among main exporters of fuel and oil products," he said.

Fresh U.S. and EU financial sanctions are snarling Iranian payments for staple food and other imports, causing hardship for its 74 million people weeks before a parliamentary election.

The election will be Iran's first since a disputed presidential vote in 2009, which the opposition says was rigged to secure Ahmadinejad's re-election. That sparked eight months of street protests which the government forcibly suppressed.